11 Money Management Tips for Beginners

1. Create a Budget

A budget is a spending plan that allocates your money into different spending and savings categories depending on your financial goals. To make a budget, start by calculating your monthly income and expenses.

Next, break expenses down into essentials and nonessentials. Essentials include necessities like rent, food, utilities and debt payments, such as student loans, car loans and credit card bills. Nonessential or discretionary spending includes things like entertainment, streaming subscriptions and dining out.

Assign a specific amount to each spending category and to savings. If your expenses exceed your income, reassess and adjust your budget.

Tip: The 50/30/20 method is a simple option for budgeting beginners, but there are plenty of other budgeting methods to choose from depending on your preferences.

2. Set Financial Goals

Short-term financial goals are ones you can generally reach within one to five years, such as building an emergency fund, saving for a down payment on a car or home or saving for a vacation. Long-term financial goals might include saving for retirement or for your children's college fund.

Whether long- or short-term, you're more likely to achieve your financial goals if they're SMART: Specific, Measurable, Achievable, Realistic and Timely. For example, "Pay off credit card debt," is too vague, but "Stop using my card, revise my budget, put $250 per month toward my balance and pay off the card in two years" is a SMART goal.

3. Track Your Spending and Progress

Budgets aren't "set it and forget it." Track your spending and review it weekly or monthly to see if your budget is realistic and how well you're following it. Using a budgeting app or the budgeting and expense tracking tools in your bank's mobile app can make this easier. Compare actual spending to your budget and make any necessary adjustments to stay on track toward your financial goals.

Learn more: Best Budgeting Apps

4. Reduce Unnecessary Spending

Reviewing your spending can reveal unnecessary expenses you could eliminate to focus on what matters most to you. Nonessential purchases are usually the easiest place to cut back. For example, dining out less, canceling unused subscriptions and putting a pause on impulse buys could free up funds you could put toward your dream vacation or a down payment on a car.

You can also reduce spending on essentials. For example, save on gas by carpooling to work, or cut grocery spending by watching for sales. Regularly shopping for car insurance or home insurance could uncover lower premiums too. You may even be able to negotiate bills for your internet, cable, cellphone and utility services.

Learn more: Ways to Save Money

5. Start an Emergency Fund

Armed with an emergency fund, you won't have to use credit cards when your car needs major repairs or you get a big medical bill. Review your budget and add up your essential living expenses like rent and car payments. Aim to build an emergency fund that can cover three to six months' worth of essential expenses.

Three to six months' worth of basic expenses may seem overwhelming, but don't expect to build an emergency fund overnight. Start small, putting aside a little each month until you save $500 or $1,000, and build from there. Choosing a savings account that maximizes earnings, like a high-yield savings account, can help your emergency fund grow faster.

Learn more: Types of Savings Accounts

6. Save for Large Purchases

Using credit cards to finance large purchases, such as new furniture, appliances or a vacation, can lead to costly interest charges if you can't pay your balance in full. Planning ahead helps prevent large purchases from turning into long-term debt.

Decide when you want to make your purchase, estimate the total cost and work backward from there to set a monthly savings goal. For instance, if you want to take a $3,000 vacation a year from now, saving $250 per month would get you to your goal.

You can use a separate savings account as a sinking fund for these and other goals, such as a down payment on a car or home. Your bank may also offer a savings bucket or savings vault feature so you can easily save for different goals within one savings account.

7. Pay Down Debt

High-interest debt can make it difficult to save or stick to a budget, so it's important to have a plan to pay it off. Start by listing your balances, interest rates and minimum payments. Then choose a payoff strategy based on your goals. The debt snowball method pays off the smallest debt first, building momentum; the debt avalanche method prioritizes your highest-interest debts to save money over time.

If you have multiple balances, you may want to consider consolidating your debt into one loan or transferring it to a credit card with a low introductory annual percentage rate (APR). These options may streamline payments and lower interest, depending on your credit and the terms you qualify for.

Tip: If you're feeling overwhelmed, a certified credit counselor can help you develop a plan to tackle your debt.

Learn more: Debt Snowball vs. Debt Avalanche Method

8. Build Your Credit

Having good credit can help mean lower interest rates on loans and credit cards, lower insurance premiums and better chances of renting an apartment. To help improve your credit score:

• Pay bills on time. Payment history is the most important factor in your credit score, so consider setting up automatic bill payments to avoid missing a due date.
• Minimize credit utilization. Your credit utilization ratio reflects the percentage of your available credit you're using on revolving credit such as credit cards. Lower utilization is better; consumers with the highest credit scores tend to keep utilization below 10%. For a card with a $5,000 limit, that means keeping your balance below $500.
• Get credit for paying your bills. Experian Boost^®ø is a free feature that adds your eligible on-time payments for rent, utility, phone, insurance and streaming service bills to your Experian credit report, which could help improve your credit scores.

Learn more: What Affects Your Credit Scores?

9. Monitor and Protect Your Credit

As you build good credit, monitoring it helps protect your progress. Keeping an eye on your credit report and credit score also helps safeguard against fraud and prevents unpleasant surprises when you apply for credit.

Regularly review your credit report for accuracy and signs of fraud, such as unfamiliar accounts or credit inquiries you don't recognize. You can get a free credit report each week from each of the three consumer credit bureaus—Experian, TransUnion and Equifax—at AnnualCreditReport.com. You can also get your Experian credit report for free anytime.

10. Start Investing for Long-Term Goals

Once you've got a workable budget, a plan for managing debt and some emergency savings in place, think about saving for retirement. Try to contribute 10% to 15% of your pretax income to your employer's 401(k) plan, or at least enough to max out any employer match. You can also open an individual retirement account (IRA) on your own.

In addition to your retirement accounts, you may also want to explore investing in stocks, bonds, mutual funds and other securities through a brokerage account. You can start investing with as little as $100, either managing your investments yourself or using a robo-advisor to manage them for you.

Learn more: When Should You Start Saving for Retirement?

11. Avoid Lifestyle Creep

Lifestyle creep is what happens when your income rises and your spending rises along with it. This can happen without you realizing it, leaving you struggling to save money or pay off debt despite pay increases.

To prevent lifestyle creep, calculate your after-tax earnings from pay increases or bonuses and make a plan for the extra money. It's OK to use some of the money to treat yourself, but putting the bulk of the extra funds toward long-term financial goals, such as retirement contributions, debt payments or savings deposits, will help you make the most of your growing income.

Frequently Asked Questions

Take Control of Your Finances

Implementing the steps above can help you take control of your money and ultimately achieve life goals like buying a house or paying for college. You don't have to do it all at once: Start with one small action and watch your positive financial habits build momentum.

You can take one money management task off your plate by signing up for Experian's free credit monitoring service. You'll be able to track your FICO^® Score^Θ and receive alerts of important changes to your credit profile that could signal fraud.